IMF says Belize’s economic growth is in jeopardy
Saturday, November 5th, 2016
Belize faces challenges of high public debt, depleting international reserves, and large and external deficits, and now its economy is in jeopardy. According to the International Monetary Fund (IMF), Belize is encountering significant vulnerabilities, and reducing public debt should be the country’s first priority.
In September 2016, IMF executive directors discussed the September report of an IMF mission to the Caribbean Community (CARICOM) country. Within the report, it emphasized that decisive policies are urgently needed in Belize to ensure macroeconomic stability, as well as to improve growth performance.
According to the IMF mission, the country’s fiscal position has weakened, which in turn, has pushed the public debt higher. In 2015, the gross domestic product (GDP) growth slowed to one per cent, and the overall fiscal deficit expanded to eight percent of GDP. The decline in oil and other commodity prices led to deflation in 2015, and even deflated to a negative 1.5 percent in the first half of 2016 compared to the same period in 2015. However, the inflation rate increased during the first months of 2016, thanks to increased food prices and a hike in the fuel tax.
The IMF acknowledged that Hurricane Earl, which hit Belize in early August 2016, strained the challenging economy even more. From damages to homes, streets, the agriculture and tourism industry, docks/piers, the increment weather posed several difficulties.
While fiscal adjustment could initially impact growth, IMF emphasized that sustained efforts, including both revenue and expenditure measures, are critical to ensuring fiscal sustainability and building investor confidence. “Directors noted the improvements in the financial sector and called for sustained efforts to tighten supervision and reduce vulnerabilities. They underscored the importance of continued careful assessment and monitoring financial sector risks and agreed that an asset quality review of all banks would dispel possible uncertainties about the size of their capital buffers,” stated the IMF.
The IMF directors noted that the loss of remaining Correspondent Banking Relationships (CBRs) could potentially have a negative impact on the financial sector, which will require action on multiple fronts, both domestically and internationally. They also highlighted that stronger implementation of the Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) framework and improved transparency in the offshore sector, with technical assistance where needed, would help further improve compliance with international standards and understanding of money laundering and terrorist financing risks, and help address the withdrawal of CBRs.”
The IMF also stated that stress tests that adjust banks’ capital buffers for shortfalls in provisioning would further strengthen the financial sector supervision toolkit. They recommend the Government of Belize (GOB) to take additional measures, such as raising the General Sales Tax (GST) rate, reducing the public wage bill, reforming the pension plan for civil servants, and strengthening public financial management, to contain public expenditures and increase revenue.
With only two months left before the New Year, Prime Minister Barrow is certain that the economy will revamp, with help from both the agriculture and tourism industry.
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